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strategic positioning desired by producer.Bagged$0.260.05$0.21Applesauce$0.650.40$0.25IdentifyAlternativesDefineProblemPredictCostsCompareCostsAssessQualitativeFactorsStep 6SelectAlternative822Chapter 17Activity Resource Usage Model and Tactical Decision Making
Other qualitative factors are also important. For example, the spike in gasolineprices in 2008–2009 led to renewed interest in hybrid vehicles. WhileToyota’sPrius,Nissan’s Altima, andChevrolet’s two-mode Tahoe SUV had paybackperiods shorter than five years, the payback on many of these vehicles is quitelong. Some take over 10 years to pay back the difference in cost between ahybrid version and nonhybrid version of a vehicle, and a few take close to 100years!2Given the fact that the economics are frequently stacked against buyingthe hybrid version, why do so many people opt for it? Qualitative reasons areoften the answer. Individuals like the idea of reducing their carbon footprintand ‘‘going green.’’ There is satisfaction in doing something good for the envi-ronment.BradleyBerman,editorofHybridcars.com,mentionsthe‘‘techappeal’’ of the hybrid vehicles. ‘‘Hybrids definitely appeal to people who areinto ‘fun technology’,’’ he says. ‘‘If you were one of the folks who went outand got an iPod or iPhone as soon as they came out, and if you use a TiVOinstead of a VCR, then you’ll probably like the fact that today’s hybrids are themost advanced vehicles out there today in terms of electronics.’’3How should qualitative factors be handled in the decision-making process? Firstof all, they must be identified. Secondly, the decision maker should try to quantifythem. Often, qualitative factors are simply more difficult to quantify, but not impossi-ble. For example, possible unreliability of an outside supplier might be quantified asthe probable number of days late multiplied by the labor cost of downtime in theplant. Finally, truly qualitative factors, such as the impact of late orders on customerrelations, or the apple producer’s discomfort with the canning option, must be takeninto consideration in the final step of the decision-making model—the selection ofthe alternative with the greatest overall benefit.Relevant Costs and RevenuesIn choosing between two alternatives, only the costs and revenues relevant to the de-cision should be considered. Identifying and comparing relevant costs and revenues isthe heart of the tactical decision model illustrated in Exhibit 17-1.Relevant costs(revenues)are future costs (revenues) that differ across alternatives. Since relevantrevenues are treated in the same way as relevant costs, we will simplify the discussionby concentrating on costs. All decisions relate to the future; accordingly, only futurecosts can be relevant. In addition, the cost also must differ from one alternative toanother. If a future cost is the same for more than one alternative, it has no effect onthe decision. Such a cost is anirrelevantcost. The ability to identify relevant andirrelevant costs is an important decision-making skill.